Bankruptcy (Indonesian: kepailitan) is the general attachment of all the assets of a debtor, administered by a curator under the supervision of a supervisory judge, for the benefit of all creditors. PKPU (Penundaan Kewajiban Pembayaran Utang, or suspension of debt payment obligations) is a court-supervised moratorium that allows a debtor to propose a composition plan to its creditors.
Legal Basis
Both procedures are governed by Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations and are heard by the Commercial Courts.
Conditions for Bankruptcy
Under Article 2(1), a debtor with two or more creditors that fails to pay in full at least one debt that is due and payable may be declared bankrupt, on its own petition or on the petition of one or more creditors. The facts must be capable of simple proof (Article 8(4)). Special rules give petitioning rights to Bank Indonesia, the Financial Services Authority, and the Minister of Finance for certain regulated entities.
How PKPU Works
A PKPU may be requested by the debtor or by a creditor. The court first grants a temporary PKPU of up to 45 days and appoints administrators. Creditors then vote on the debtor's composition plan. The total period, including extensions, may not exceed 270 days. If the plan is approved and ratified, it binds all unsecured creditors; if it is rejected, the debtor is declared bankrupt.
Creditor Ranking
Secured creditors holding mortgages, fiduciary security, pledges or hypothecs may enforce their security as if there were no bankruptcy, subject to a stay. Preferred creditors, such as the state for taxes and employees for wages, rank ahead of ordinary unsecured creditors.